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CIBIL Score, Credit Score, Credit Rating and CIBIL Report Explained

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Credit is necessary for everyone, whether they are individuals or businesses. Credit is necessary for an individual to achieve financial goals such as purchasing a home, a car, or starting a business. Credit is also vital for business owners since they use the money, they borrow to invest in infrastructure to grow their company. Banks and other financial entities provide loans to individuals. Banks, as well as institutions and institutional investors, provide loans to businesses. For loan applicants, terms like credit score, CIBIL score, and credit report can be highly confusing. Check out this article to learn more about these phrases and how they differ from one another.

What is a CIBIL Score?

A CIBIL score, also known as a credit score, is a number that indicates a person’s creditworthiness. Customers’ loan and credit-related information are gathered from lenders registered with CIBIL, which is also known as a credit bureau and is used to calculate CIBIL scores.

Credit bureaus calculate a customer’s final credit score based on several factors. This information could include the number of credit cards you hold, your credit card bill payback history, credit utilization information, and the number of secured and unsecured loans you have taken out.

The CIBIL credit score ranges from 300 to 900. A CIBIL score of 750 or higher is deemed good; anything below that does not reflect well on a customer’s creditworthiness.

A CIBIL score differs from a CIBIL report in that a CIBIL score is a numerical expression obtained from credit information processing, whereas a CIBIL report is a comprehensive document encompassing all credit information. Credit scores are just numbers that show a customer’s creditworthiness, whereas credit reports are records that contain specific information about their credit history.

What is Credit Score?

A credit score is a three-digit figure that represents your financial health or the likelihood of receiving credit. Banks use this score to determine whether or not to give credit cards or loans and reject credit card and loan applications. There are numerous methods for raising one’s credit score. You can review your credit report for any irregularities, and if any errors are discovered, you can file a dispute with CIBIL.

Credit score and report inaccuracies, on the other hand, are uncommon. There have been instances of identity theft, such as loan inquiries made in your name in an application that was actually made by someone else. As a result, it is critical to have your credit report verified at least once a year to ensure that your financial accounts and records have not been mistreated, while also receiving an update on your current credit score.

What is a CIBIL Report?

It should not be difficult to read the CIBIL report now that you know the CIBIL score. Your CIBIL report is a document created by CIBIL that contains information about your CIBIL score, debt accounts, and payments. It provides information about any previous loans you may have taken, as well as credit card dues and how you repaid them. CIBIL generates your CIBIL score using all of this information.

It contains your personal information, such as your name, address, Permanent Account Number (PAN), contact information, and so on, in addition to debt-related information. Furthermore, if you apply for a new loan or credit card, the lender notifies CIBIL, and all of these applications are noted in your CIBIL report. The other three credit bureaus, like CIBIL, also offer their own credit reports.

Also Read: Loan Against Property: Benefits, Eligibility, and Documents Required

What is a Credit Rating?

Credit ratings are typically assigned to firms for loans obtained from banks, non-bank financial companies (NBFCs), institutions, or institutional investors in the form of loans or other forms of debt.

The ability of a borrower to repay both the principal and interest is determined by his or her credit rating. The business’s historical loan and interest payback history are used to determine a good credit rating.

How Are CIBIL Score, Credit Report, and Credit Rating Related?

While the information offered by a CIBIL score, credit report, or credit rating may differ, they all serve the same purpose: they are trustworthy sources of information on a borrower’s creditworthiness. The CIBIL score is a component of a credit report that shows interest and principal repayment for both people and businesses. Credit rating also provides information about the likelihood of your principal and interest being safe when debt instruments such as bonds and debentures are issued by firms.

Importance of CIBIL Score, Credit Report, and Credit Rating

  • The CIBIL score, credit report, and credit rating are all important in the credit business.
  • Individuals submit applications for home loans, vehicle loans, and personal loans to banks. Businesses seek bank loans to expand their operations.
  • Banks would be taking a risk every time they sanction a loan if they didn’t have a CIBIL score and credit report. If the majority of bank loans turn out to be faulty or suspect, the bank will lose money.
  • Businesses sell a variety of debt products to individuals and institutions to raise capital for expansion. They pay a coupon or interest to individuals or institutional investors in the same way that they pay interest to banks when they take out loans.
  • You wouldn’t be able to tell if your investment is safe or not if credit rating agencies didn’t exist. Once you have a rating, you can invest in the instrument with confidence.

Customers should obtain their credit reports at least once a year to review their records and correct any inconsistencies. Credit reports can be obtained by submitting an online application to CIBIL. Customers can purchase these reports and scores for a set fee. Customers can examine these records to improve their credit ratings.

To summarise, a credit score is a numerical indicator of your creditworthiness, but a credit report is a complete account of your credit behavior over time.

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